Why Shorting The Aussie Is The 'Trade of the Century'

The resilient Australian dollar, which has overcome global
headwinds to stay above parity against the U.S. dollar for most
of the past two years, is due for a major correction, according
to one analyst who predicts the currency could fall over 40
percent in the next 18 months.

"It's difficult to see any clear major direction in any of the
currencies other than the Aussie dollar longer term, which we
obviously think looks like the trade of the century, trying to
short the Aussie, "Paul Gambles, managing partner at advisory
firm MBMG International told CNBC's
"Asia Squawk
Box" on Monday.

Gambles said he expects the Aussie dollar to fall as low as 60
U.S. cents from the current $1.03 mark within 18 months.

"I would be surprised if the Aussie dollar is still holding above
90-99 US cents by the year-end, but once the move comes then
parity to 60 handle could happen within a matter of just a few
months," Gambles said.

Earlier this month, the commodity currency came under pressure,
falling to a six-week low of $1.0219 last week Tuesday after data
showed manufacturing activity in its
biggest export market China fell to a two-month low in April. But
since then, the Aussie has staged a comeback, rising 0.5 percent.

Gambles said an intertwining of several factors like a slowdown
in China and falling global commodity demand could lead to
weakness in the
domestic economy. This in turn can push the Reserve
Bank of Australia, which has kept interest rates steady this
year, to cut rates, which will be negative for the Aussie.

In a pre-budget speech on Monday, Australian Prime Minister Julia
Gillard said that a stubbornly high Australian dollar has played
a part in government revenue falling to $12.3 billion, less than
expected, for this fiscal year that ends in June.

"[The Aussie dollar] upside seems capped and downside seems
pretty well unlimited," Gambles said, adding that the Australian
economy has become "totally dysfunctional' relying on an
"ephemeral" boost from China.

He added that "speculative, yield-seeking inflows that currently
inflate the Australian dollar value by some 15 percent will not
only disappear, but actually turn negative."

- By CNBC.com's Rajeshni Naidu-Ghelani; Follow her on Twitter
@RajeshniNaidu